Stronger growth, but risks loom large ngel Gurra OECD - - PowerPoint PPT Presentation

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OECD ECONOMIC OUTLOOK Stronger growth, but risks loom large ngel Gurra OECD Secretary-General lvaro S. Pereira OECD Chief Economist ad interim Paris, 30 May Key messages Global growth will be around 4% Investment and trade have

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Stronger growth, but risks loom large

Ángel Gurría

OECD Secretary-General

Álvaro S. Pereira

OECD Chief Economist ad interim

OECD ECONOMIC OUTLOOK

Paris, 30 May

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Key messages

Global growth will be around 4%

Investment and trade have rebounded

Monetary and fiscal policies have been supportive

Three quarters of OECD countries are undertaking fiscal easing

Job growth has been strong

The OECD unemployment rate will be at its lowest since 1980

Risks loom large over the next few years: oil prices, trade tensions, financial volatility

Rising interest rates will pose challenges for highly indebted countries, households and corporations.

Now is the time to reform for sustainable and inclusive growth

Invest in education, skills, digital infrastructure

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A stronger expansion

Global GDP growth

Contributions by regions

Source: OECD Economic Outlook database.

1 2 3 4

1 2 3 4 2012 2013 2014 2015 2016 2017 2018 2019 % pts % pts

China India United States Euro area Other advanced Others 3

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Real GDP growth

Year-on-year, %

Note: The European Union is a full member of the G20, but the G20 aggregate only includes countries which are also members in their own right.

1. Fiscal years starting in April.

OECD Economic Outlook projections

2017 2018 2019 2017 2018 2019 World 3.7 3.8 3.9 G20 3.8 4.0 4.1 Australia 2.3 2.9 3.0 Argentina 2.9 2.0 2.6 Canada 3.0 2.1 2.2 Brazil 1.0 2.0 2.8 Euro area 2.6 2.2 2.1 China 6.9 6.7 6.4 Germany 2.5 2.1 2.1 India1 6.5 7.4 7.5 France 2.3 1.9 1.9 Indonesia 5.1 5.3 5.4 Italy 1.6 1.4 1.1 Mexico 2.3 2.5 2.8 Japan 1.7 1.2 1.2 Russia 1.5 1.8 1.5 Korea 3.1 3.0 3.0 Saudi Arabia

1.6 2.1 United Kingdom 1.8 1.4 1.3 South Africa 1.3 1.9 2.2 United States 2.3 2.9 2.8 Turkey 7.4 5.1 5.0

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Real GDP growth

Year-on-year, % 5

OECD Economic Outlook projections

2017 2018 2019 2017 2018 2019 Austria 3.1 2.7 2.0 Latvia 4.5 4.1 3.6 Belgium 1.7 1.7 1.7 Lithuania 3.8 3.3 2.9 Chile 1.6 3.6 3.6 Luxembourg 2.3 3.6 3.8 Colombia 1.8 2.7 3.2 Netherlands 3.3 3.3 2.9 Costa Rica 3.2 3.7 3.7 New Zealand 3.0 3.0 3.0 Czech Republic 4.6 3.8 3.2 Norway 1.9 1.8 1.6 Denmark 2.2 1.7 1.9 Poland 4.6 4.6 3.8 Estonia 4.8 3.7 3.2 Portugal 2.7 2.2 2.2 Finland 2.6 2.9 2.5 Slovak Republic 3.4 4.0 4.5 Greece 1.3 2.0 2.3 Slovenia 5.0 5.0 3.9 Hungary 4.0 4.4 3.6 Spain 3.1 2.8 2.4 Iceland 3.6 2.8 2.6 Sweden 2.7 2.8 2.2 Ireland 7.8 4.0 2.9 Switzerland 1.1 2.3 1.9 Israel 3.3 3.7 3.6

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Investment has rebounded

Contribution to investment growth

OECD economies

Note: Gross fixed capital formation, in volume. Data are year-on-year growth rates. Projections for 2018 and 2019. Source: OECD Economic Outlook database; and OECD calculations.

1 2 3 4 5

1 2 3 4 5 2011 2012 2013 2014 2015 2016 2017 2018 2019

Business and public Residential OECD

% pts % pts

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Trade has recovered

Growth in global trade

Note: World trade is measured as goods and services trade volumes measured at market exchange rates in US dollars. Global Port Traffic is measured monthly through the RWI/ISL-Container-Throughput-Index, seasonally and working day adjusted. Projections for 2018 and 2019. Source: OECD Economic Outlook database; and RWI/ISL.

100 107 114 121 128 135 142 1 2 3 4 5 6 2012 2013 2014 2015 2016 2017 2018 2019 Index 2010 = 100 % y-o-y Global trade growth (lhs) Global Port Traffic (rhs)

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Interest rates remain low, but are beginning to rise

Policy rates

Actual and projections

Note: Policy rates are the federal effective funds rate for the United States, the main refinancing operations rate for the euro area and the complementary lending facility rate for Japan. Source: OECD Economic Outlook database.

1 2 3 4 5 6

United States Euro area Japan

% %

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Note: The fiscal stance is calculated based on changes in the underlying primary balance as a percentage of potential GDP. Large fiscal easing is for a deterioration of the balance by more than 0.5% of potential GDP and small easing is for a deterioration by less than 0.5% of potential GDP. Large and small fiscal tightening are defined analogously. Chile, Mexico and Turkey are excluded due to the lack of data. Projections for 2018 and 2019. Source: OECD Economic Outlook database; and OECD calculations.

Change in fiscal stance in OECD countries

Fiscal policy is easing

4 8 12 16 20 24 28 32 4 8 12 16 20 24 28 32 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Large easing Small easing Small tightening Large tightening

Number of countries Number of countries

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Note: Labour force participation rates and employment rates for working-age population aged 15-64 years. Unemployment as percentage of the working-age population is the difference between the two curves. Source: OECD Short-Term Labour Market statistics.

Job creation is strong, but there is room to bring more people into work

Euro area United States Japan

60 62 64 66 68 70 72 74 76 78 80 2008 2013 2018 Unemployment Employment Labour force participation % of working-age population 60 62 64 66 68 70 72 74 76 78 80 2008 2013 2018 Unemployment Employment Labour force participation % of working-age population 60 62 64 66 68 70 72 74 76 78 80 2008 2013 2018 Unemployment Employment Labour force participation % of working-age population

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0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0 United States Euro area Japan

1995-2007 2007-2017 2017-2019 (projected)

% %

Wage growth is picking up, but remains moderate

Note: Real wage growth is calculated from nominal wage growth and the GDP deflator. Projections for 2018 and 2019. Source: OECD Economic Outlook database.

Average annual growth in real wages per employee

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Inflation is set to rise moderately

Inflation, excluding food and energy

Note: Core inflation excludes energy and food products and refers to harmonised data for the euro area. Dotted lines are quarterly projections for 2018 and 2019. The projections shown exclude the impact of the planned consumption tax hike in Japan. Source: OECD Economic Outlook database.

0.0 0.5 1.0 1.5 2.0 2.5 3.0

United States Euro area Japan

% y-o-y % y-o-y

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RISKS LOOM LARGE

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Global demand-supply balance and oil prices

Oil prices have risen significantly

Note: The global demand-supply balance measures the difference between global supply and global demand, both indexed to 100 in 2012Q3, 4 quarter moving average. Oil price refers to crude oil Brent price. The last point for oil prices is the last available daily value, as of 28 May 2018. Source: International Energy Agency; Thomson Reuters; and OECD calculations.

20 40 60 80 100

0.0 0.5 1.0 2015 2016 2017 2018

Global demand minus supply (lhs) Oil price (rhs)

USD per barrel Index

Demand < supply Downward pressure on prices Demand > supply Upward pressure on prices

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Some emerging market economies have come under pressure

EME exchange rates have depreciated recently

USD exchange rate

Note: Data as of 28 May 2018. Source: Thomson Reuters; and OECD calculations.

Depreciation since mid-April: MEX: 8.1% ZAF: 3.3% IDN: 1.5% BRA: 8.5% TUR: 10.6% ARG: 18.3% 15

70 75 80 85 90 95 100 105 110

Argentina Brazil Mexico South Africa Turkey Indonesia

Jan 2018 = 100 Depreciation against USD

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Debt in foreign currency

Note: Debt of non-bank borrowers in the form of bank loans and debt securities denominated in foreign currencies. Data as of 2017Q4. Source: Bank for International Settlements Global Liquidity Indicators database; and OECD calculations.

A number of emerging market economies are exposed to foreign currency debt

5 10 15 20 25 5 10 15 20 25 TUR MEX IDN RUS ARG ZAF BRA CHN IND

USD JPY EUR

% of GDP % of GDP

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Note: Credit liabilities are on a non-consolidated basis. Data as of 2017Q3. Source: Bank for International Settlements; and OECD calculations.

High private sector debt creates vulnerabilities

Credit liabilities of non-financial corporations

20 40 60 80 100 120 140 160 180 20 40 60 80 100 120 140 160 180

CHN FRA CAN JPN EA KOR G20 GBR AUS USA ITA TUR DEU RUS SAU IND BRA ZAF MEX IDN ARG

% of GDP % of GDP

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Global stock market capitalisation

Source: World Federation of Exchanges; and OECD calculations.

Equity prices remain high despite a recent correction

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Deep financial integration has increased exposure to foreign shocks

International financial assets and liabilities

Note: Sum of external assets and liabilities. Country sets vary over time depending on the availability of series for individual economies. Source: IMF Balance of Payments Statistics; OECD Economic Outlook database; and OECD calculations.

50 100 150 200 250 300 50 100 150 200 250 300 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017

Advanced economies Emerging market economies

% of global GDP % of global GDP

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A negative shock to trade would be more harmful than in the past

Global exports and imports

Note: Trade is the average of exports and imports in a given year. Both trade and GDP are measured in volumes in US dollars at market exchange rates. Source: OECD Economic Outlook database; and OECD calculations.

5 10 15 20 25 30 35 5 10 15 20 25 30 35 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017

Advanced economies Emerging market economies

% of global GDP % of global GDP

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POLICIES TO MAKE GROWTH MORE SUSTAINED AND INCLUSIVE

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5 10 15 20 25 30 35 40 45 5 10 15 20 25 30 35 40 45 2011-12 2013-14 2015-16 2017 2011-12 2013-14 2015-16 2017 % % In process of implementation In process of implementation Emerging market economies Advanced economies

Note: The estimated take-up of reforms is captured by the Going for Growth indicator of reform responsiveness. Fully coloured bars refer to the share of fully implemented reforms. For 2017, reforms in process of implementation are shown to ensure comparability with previous 2-year periods. Emerging market economies include Argentina, Brazil, Chile, China, Colombia, Costa Rica, Indonesia, India, Mexico, Russia, Turkey and South Africa. Advanced economies include all non-emerging OECD member countries and Lithuania. Source: OECD Going for Growth.

Step up structural reform ambition

Implementation of Going for Growth recommendations

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Invest in education and skills for medium-term inclusive growth

Note: Refers to reform priorities identified in Going for Growth in 2017 for the 46 economies covered. Source: OECD Going for Growth 2018.

Take-up of reforms

Share of Going for Growth recommendations

10 20 30 40 50 60 70 80 90 100 Alignment of higher education to labour market needs Support for disadvantaged schools and students Training and language acquisition support for migrants Teaching quality and teachers' prospects Vocational education, training and apprenticeships Access and efficiency in higher education Life-long learning and vocational education Skill recognition and employers' information for migrants %

Fully implemented In process of implementation No action taken in 2017

Higher reform intensity Lower reform intensity

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Boost job creation and business dynamism in the digital era

Note: Based on up to 28 OECD countries per technology. Source: OECD ICT Access and Usage by Business database.

Diffusion of ICT technologies is uneven

% of firms using technologies, 2016, OECD countries

 Improve digital and physical infrastructure  Enhance R&D collaboration between universities and industry  Streamline permits and licensing, cut red tape  Reduce barriers to entry in professional services

Recommendations

20 40 60 80 100 20 40 60 80 100

median min-max

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Source: OECD Taxing Wages.

Tax wedge on low income labour

Average effective tax rates, 2016

Use fiscal instruments to make growth work for all

Reforms to the tax and spending mix would boost output and enhance equality

 Reduce the tax wedge on low-income earners  Raise environmental taxes and recurrent property taxes  Increase public investment  Increase family and child allowances and subsidies for childcare

Mexico Korea Canada United Kingdom United States Australia Japan Spain Turkey Italy Germany France Belgium 10 20 30 40 50 %

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Reduce trade barriers to boost productivity and incomes

Note: Scenario in which tariffs are reduced by all G20 economies to the lowest level applied across them for each sector. Source: OECD METRO model simulations.

1 2 3 4 5 6 7 8 1 2 3 4 5 6 7 8 World United States European Union China % %

Imports Exports

Increase in trade from multilateral tariff reductions

Estimated medium-term impact of lowering tariffs in all G20 economies 26

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